"A contributing factor why three-month Libor didn't fall today was that the overnight rate jumped higher," said a money market trader. The overnight euro rate hit 0.61500 percent, up from 0.27625 percent on Monday, as investors reacted to the European Central Bank's announcement that it will drain funds on Tuesday at its operations on the final day of the monthly maintenance period at 1400 GMT.
"The ECB's fine-tuning operation sees the overnight rate spike higher temporarily, but I would still expect euro Libor rates generally to stay at low levels, as this is only be a technical move higher," said Peter Chatwell, a market strategist at Calyon in London. The three-month sterling Libor also ticked higher on Tuesday at the London fixings, to 0.61375 percent from 0.61125 percent on Monday.
It followed data earlier which showed UK consumer prices rose at an annual rate of 2.9 percent in December, above a forecast 2.6 percent. The data came in contrast with timid inflation expectations in the euro zone, where the French break-even rate this year eased. On Tuesday, it was 195 basis points down from 222 bps at the start of the year.